Energy Economics Final Carson SP 26

1. A 1GtC wedge proposed by Pacala and Socolow reduced CO2 emissions from automobiles by making

them run on ___________________ rather than gasoline.

hydrogen - One of the stabilization wedges, this involves replacing internal combustion engines with hydrogen fuel cell vehicles, eliminating tailpipe CO2 emissions entirely.

one of the most important early environmental economists, did the first economic work on climate change.

William Nordhaus - Nordhaus developed the DICE model (Dynamic Integrated Climate-Economy), pioneering the use of cost-benefit analysis for climate policy. He won the Nobel Prize in Economics in 2018

The Kyoto Protocol failed to produce large scale reduction in CO2 emissions by the countries of the European Union because they purchased "hot air" from _______, which had a high baseline level of CO2 emissions before its economy collapsed

Russia - Russia's industrial economy collapsed after the Soviet Union fell, so their emissions dropped far below their Kyoto baseline — creating surplus credits that EU countries could buy instead of actually reducing their own emissions.

The IPCC is part of the __________

United Nations- The IPCC doesn't conduct original research — it synthesizes existing climate science and economics into major assessment reports used to inform international policy.

BAU stands for

Business As Usual- It describes an emission scenario where no new climate policies are enacted and emissions continue on their current trajectory — used as a baseline for comparison.

_____________ couple a physical-biological science model with an economic model describing how greenhouse gases are emitted

Integrated Assessment Models (IAMs) - IAMs are the backbone of climate economics — they link the physical climate system to human economic activity to evaluate policy tradeoffs.

Often times environmental justice problems result from failure to _________ existing pollution control laws uniformly across the country

enforce - Minority and low-income communities often bear disproportionate pollution burdens not because laws don't exist, but because enforcement is inconsistent.

If a command and control regulation is going to be used, economists generally prefer a _______ standard over a technology-based standard.

performance- Performance standards set an outcome target (e.g., emissions per unit) but let firms choose how to achieve it, preserving cost efficiency. Technology standards mandate a specific method, which is less flexible and often more expensive

Arrhenius predicted the average temperature change associated with doubling CO2 over ____ years ago.

130 - Svante Arrhenius published his landmark calculation in 1896, estimating ~5°C warming from doubled CO2 — remarkably close to modern estimates given the tools available.

GCMs predict the most intense climate change will be first observed in the ________ region.

Arctic/polar— Arctic amplification occurs because melting sea ice reduces albedo (reflectivity), causing the region to absorb more heat — warming faster than anywhere else on Earth.

Using coal to produce electricity results in roughly ______ the amount of CO2 emitted per kWh compared to natural gas.

twice—- Coal is more carbon-intensive because it has a higher carbon-to-energy ratio. Natural gas (mostly methane) burns cleaner, producing significantly less CO2 per unit of electricity generated.

The main reason it is so hard to make rapid progress on reducing CO2 emissions is that the energy-related ________ is long lived.

infrastructure—- Power plants, pipelines, and vehicles last decades — meaning even if we stop building fossil fuel infrastructure today, existing capital continues emitting for years.

The__________________ suggests that high income industrialized countries will have lower levels of local air pollution than middle income rapidly industrializing countries.

Environmental Kuznets Curve (EKC) —— The EKC shows an inverted-U relationship between income and pollution — as countries get richer, they eventually clean up local pollution through regulation and cleaner technology, though this may not apply to CO2.

Optimal production from a welfare economics perspective should occur where the _________ curve crosses the demand curve.

social marginal cost (SMC)—- CO2 is a negative externality — private supply curves don't capture the full social cost. The SMC adds the external damage cost, shifting the curve up and reducing the optimal quantity of production.

Roger Revelle is known as the father of modern climate change science because he discovered that the _____ were not going to absorb most of the CO2 emitted from burning fossil fuels.

Oceans- Scientists assumed oceans would soak up most human CO2 emissions. Revelle showed the ocean's chemistry limits this absorption, meaning CO2 would accumulate in the atmosphere — setting the stage for modern climate science.

Temperature-sensitive sectors make up about _____ of the U.S. economy.

3%—- This is why some economists argue the direct GDP impact of climate change on the U.S. may be modest — most of the modern economy (tech, finance, services) is less exposed to temperature than agriculture or coastal real estate.

___________ describes the common practice of letting existing factories meet lower pollution standards that were in effect when they were built.

Grandfathering — This creates a perverse incentive — new plants face stricter standards, making it cheaper to keep old polluting plants running longer rather than building cleaner replacements.

The _______ approach works by recognizing that most local environmental amenities are capitalized into land values and wage rates.

hedonic pricing— If clean air or proximity to green space is valuable, it shows up in higher home prices. Economists use this to infer the implicit price people place on environmental quality.

The 1983 National Academy of Sciences report found that most of the benefits of preventing global climate change would go to ________ countries.

Developing - Poorer, lower-latitude countries are most vulnerable to heat, drought, and sea level rise, and have the least capacity to adapt — so they stand to gain the most from mitigation.

Climate models in the 1960s and 70s failed to predict flat temperatures because they didn't adequately account for _______________, which were helping to prevent temperatures from rising.

aerosols/sulfate aerosols —- Industrial pollution released sulfate particles that reflected sunlight and cooled the planet, temporarily masking greenhouse warming. Once clean air regulations reduced aerosol emissions, warming resumed.

The United States successfully used what pollution control approach to substantially reduce emissions of lead and sulfur dioxide.

(A) Cap and Trade

(B) Command and Control

(C) Legal Intervention

(D) Pollution Tax

(A) Cap and Trade — The U.S. used emissions trading (notably the Acid Rain Program) to successfully cut SO2, and phased out leaded gas through regulatory standards with tradeable credits.

Fifty years from now, which of these countries is likely to have the largest total carbon dioxide

emissions?

(A) Canada

(B) India

(C) Japan

(D) Russia

(B) India — India has a massive and growing population and rapidly expanding economy, making it the most likely to have the largest total CO2 emissions in 50 years.

3. Commonly proposed geoengineering solution(s) to global climate change:

(A) fertilizing ocean with iron to create algae blooms

(B) injecting SOx particulates into atmosphere

(C) using balloons/mirrors to reflect sunlight into space

(D) All three of these—(A), (B), and (C)

(D) All three — Iron fertilization, sulfate injection, and space-based reflectors are all commonly proposed geoengineering approaches

4. Programs that help subsidize households replacing old refrigerators with more energy efficient ones have the large impact on reducing electricity associated with the:

(A) baseline load

(B) the duck graph ramping problem

(B) intermediate load

(D) peak load

(A) Baseline load — Refrigerators run 24/7, so replacing them reduces the constant baseline electricity demand, not peak or intermediate spikes.

5. Carbon dioxide is responsible for about what fraction of the overall impact of greenhouse gases on global climate change?

(A) 25%

(B) 45%

(C) 65%

(D) 85%

(C) 65% — CO2 is the dominant greenhouse gas, responsible for roughly 65% of the human-caused greenhouse effect

6. Lead in gasoline is now thought to have been a major contributor in the early 1990’s to:

(A) Crime in neighborhood exposed to heavy traffic

(B) Smog

(C) Contamination of SOx scrubbers

(D) CFC interaction with ozone

(A) Crime in neighborhoods exposed to heavy traffic — Lead exposure in children causes neurological damage linked to increased criminal behavior; the drop in crime in the 90s correlates strongly with the leaded gas phaseout

7. Which of these says that it is not necessary to regulate pollution externalities if property rights involving pollution are clearly assigned and transactions cost are small.

(A) Coase Theorem

(B) Environmental Kuznets Curve

(C) Free Riding

(D) Margin Crossing

(A) Coase Theorem — Coase argued that with well-defined property rights and low transaction costs, parties can negotiate efficient outcomes without government regulation.

8. The British government’s report (Stern Report) on the benefits and costs of climate change suggests that there are large net benefits to taking strong action now to reduce greenhouse gas emissions. This differs from the economic work done in the United States building on the (Nordhaus) DICE model, which suggests substantially lower net benefits. The main factor responsible for this difference is:

(A) accounting for rising sea levels

(B) accounting for cost of extreme weather events

(C) the discount rate used

(D) using more pessimistic assumptions about phasing out coal

(C) The discount rate used — Stern used a very low discount rate, giving future climate damages much more weight. Nordhaus used a higher rate, making future damages worth less today

9. An example of a regional air pollutant is

(A) acid rain (SOx)

(B) Freon

(C) methane

(D) volatile organic compounds

(A) Acid rain (SOx) — SOx travels regionally via wind before depositing as acid rain. Freon and methane are global; VOCs are more local.

Large feed-in tariffs (the rate paid the home owner) for electricity generated from solar panels on home rooftops helps to increase the number of solar panels and promote the installation of solar, but increase the cost of electric bills for:

(A) older households

(B) poorer households

(C) rural households

(D) single family homeowners

(B) Poorer households — Feed-in tariffs raise electricity rates for everyone, but poorer households are less likely to own solar panels and more burdened by higher bills.

1. Methane stays in the upper atmosphere as a greenhouse gas for twice as long as CO2.

(A) TRUE (B) FALSE

(B) FALSE — CO2 actually stays in the atmosphere far longer (hundreds of years); methane is more potent but breaks down in about 10–12 years.

2. Climate change is expected to result in more hurricanes but with lower average wind speed.

(A) TRUE (B) FALSE

(B) FALSE — Climate change is expected to produce fewer but more intense hurricanes with higher wind speeds, not lower

3. Major coastal cities around the world like New York and Shanghai are starting to build seawalls to

protect against project sea-level rise associated with climate change.

(A) TRUE (B) FALSE

(A) TRUE — Cities like New York (after Sandy) and Shanghai are actively investing in seawalls and flood barriers

4. California’s policy effort to get solar panels installed on the roofs of a million homes has been a failure, in spite of very large expenditures made to support it.

(A) TRUE (B) FALSE

• (B) FALSE — California's million solar roofs initiative was actually a success — California became a world leader in rooftop solar installation

5. The U.S. government regulatory standards for a wide range of appliances are intended to improve the energy efficiency of the products that are already the most efficient in an effort push the technology frontier forward.

(A) TRUE (B) FALSE

• (B) FALSE — Appliance standards target the least efficient products to bring them up to a minimum threshold, not to push the already-efficient frontier further.

One of the main examples of a cap and trade program is an investor-owned electricity utility providing financial incentives to replace old appliances with more energy efficient ones.

(A) TRUE (B) FALSE

• (B) FALSE — Utility appliance rebate programs are an example of an economic incentive approach, not cap and trade.

Charles Keeling at UCSD’s Scripps Institution of Oceanography started recording the daily concentration of CO2 during the 1997-1998 International Geophysical Year.

(A) TRUE (B) FALSE

• (B) FALSE — Keeling began recording CO2 in 1958, during the International Geophysical Year of 1957–58, not 1997–98.

CO2 emissions from a coal-fired power plant stay in the upper atmosphere for about 200 years.

(A) TRUE (B) FALSE

TRUE — CO2 from combustion can persist in the atmosphere for 200 years or more

Scientists have recently shown the cycle of the Sun’s solar activity has had a large influence on the pattern of global climate change, suggesting the impacts of greenhouse gases have been overestimated.

(A) TRUE (B) FALSE

FALSE — Solar activity has been studied and does not explain the observed warming pattern; the scientific consensus is that greenhouse gases, not solar cycles, are driving modern climate change

Cash for clunkers (old cars), gasoline taxes, and marketable SOx permits are all examples of the economic incentive approach to environmental regulation.

(A) TRUE (B) FALSE

FALSE — Cash for clunkers and gasoline taxes are economic incentive approaches, but marketable SOx permits are cap and trade — which is a subset of economic incentives, so this is tricky. However, SOx permits are typically categorized separately from the "economic incentive" label in this context, making the statement false as a grouped claim.

. Pacala and Socolow propose several 1GtC wedges that involve motor vehicles. One of these is:

_____________________________________________

Increasing fuel efficiency / reducing miles traveled / running on hydrogen — Pacala & Socolow proposed multiple vehicle wedges including doubling fuel economy, reducing vehicle miles traveled, and hydrogen fuel cells

Using a discount rate of _____% in a benefit-cost analysis of a climate change policy implies the same amount of weight is being put on the welfare of future generations as is being put on the current one.

0% — A 0% discount rate means future welfare is weighted equally to present welfare; any positive rate discounts future generations

When asked what should be done to reduce a negative externality from burning natural gas, the first response of a professional economist is likely to be to place a _________________ on the quantity of the natural gas used

Tax — Economists default to a Pigouvian tax to internalize the externality and let the market adjust efficiently

Putting sulfates into the upper atmosphere to help cool the planet is an example of a

___________________ widely thought to be capable of preventing the planet from warming.

• Geoengineering solution — Stratospheric sulfate injection mimics volcanic cooling and is the most discussed geoengineering approach.

The country which is currently the largest emitter of carbon dioxide is ___________________________.

• China — China is currently the world's largest CO2 emitter.

Time of day pricing for electricity is one DSM approach for reducing the need for new

____________________________peaking units.

• Natural gas peaking units — Time-of-use pricing shifts demand away from peak hours, reducing the need to fire up expensive gas peaker plants.

The UCSD professor, often referred to as the father of modern climate science, is:

______________________________________

Roger Revelle — Revelle discovered oceans wouldn't absorb most CO2, launching modern climate science

A ________________________________ was used by the United States to substantially reduce emissions of sulfur dioxide from coal fired power quicker and at a lower cost than under U.S. EPA’s BPT/BAT standards approach

• Cap and trade (marketable permits / Acid Rain Program) — The SO2 trading program cut emissions faster and cheaper than command-and-control standards.

The International Organization, which is part of the United Nations, in charge of coordinating the ongoing climate negotiations between the different countries of the world and summarizing current scientific knowledge about climate change is:

________________________________________________________________________

• The IPCC (Intergovernmental Panel on Climate Change) — Part of the UN, it synthesizes climate science and coordinates negotiations.

Burning natural gas to produce electricity results in roughly ________% less CO2 being emitted per kWh than does burning coal to produce electricity.

• ~50% — Natural gas emits roughly 50% less CO2 per kWh than coal.

if a command and control standard’s approach is to be used to control pollution, economists recommend using a _____________________________ rather than the technology-based standard approach adopted in the U.S. Clean Air Act of 1970.

• Performance standard — Economists prefer performance standards because firms can choose the cheapest way to meet the target.

In benefit-cost analyses involving climate change, it is common to use an estimate of the social cost of ______________________________ as a way of putting a monetary value on reductions in greenhouse gas emissions projected to occur under the policy being evaluated

Social cost of carbon — This dollar figure captures the total damage from one additional ton of CO2 and is used to monetize climate policy benefits.

____________________________ is the best known example of a global mixing pollutant because its impact in the long run does not matter where on the planet it was emitted from.

Carbon dioxide (CO2) — CO2 is the classic global mixing pollutant; it disperses globally so its impact is the same regardless of where it's emitted.

General Circulation Models (GCMs) from the physical sciences are used to predict changes in key variables such as daily mean temperature. Differences in the predictions from two different GCMs are most likely to be due to how they model _________________________. [Hint: atmospheric characteristic]

• Clouds / cloud formation — Cloud modeling is the biggest source of uncertainty and disagreement between GCMs.

In an Integrated Assessment Model (IAM), the economist’s decision about what ______________ rate to use will generally make more difference in the magnitude of projected benefits and costs of policy options over long time horizons than other features of the model’s economic sectors.

• Discount rate — The choice of discount rate dominates long-run cost-benefit results in IAMs more than almost any other assumption.

A __________________________ tax swap occurs when one type of tax such as the gasoline tax is increased and another type of tax reduced so the overall amount of taxes paid stays constant.

• Revenue-neutral tax swap — The idea is to shift taxation without raising the total tax burden (e.g., raise carbon tax, cut income tax).

Smog forms by mixing __________ and VOC (volatile organic compound) in the presence of sunlight.

• NOx (nitrogen oxides) — Smog (ground-level ozone) forms when NOx and VOCs react in sunlight.

______________________ represents about 65% of the greenhouse gases in terms of impact on

global climate change

• Carbon dioxide (CO2) — CO2 accounts for ~65% of the total greenhouse effect from human emissions.

Little in the way of actual reductions in greenhouse gas emissions occurred from the Kyoto

Protocol because the European countries bought “hot” air from:

○ concrete producers in China

○ efforts aimed at protecting tropical rainforest in Brazil

○ reduced production by coal fired power plants in Poland

○ Russian emission credits for reductions that occurred during its large scale industrial collapse

• Russian emission credits — The Soviet industrial collapse left Russia with massive surplus credits that EU countries purchased instead of cutting their own emissions.

A relatively short-lived greenhouse gas is:

○ carbon dioxide

○ CFCs

○ methane

○ sulfur hexafluoride

Methane — Methane breaks down in ~10–12 years; CO2, CFCs, and SF6 persist for far longer.

popular U.S. program run by U.S. EPA and DOE to certify energy efficient products is called:

○ Electric Wizard

○ Energy Star

○ Energy Wizard

○ Star Equipment

Energy Star — The EPA/DOE Energy Star program certifies energy-efficient appliances and electronics

The practice of requiring new factories and power plants to have extensive pollution control equipment, while exempting old ones from having to reduce pollution is known as:

○ capital replacement

○ extended maintenance

○ grandfathering

○ investment insurance

• Grandfathering — Existing plants are exempted from new stricter standards, creating a perverse incentive to keep old polluting facilities running.

A European country that provided incentives for the installation of a large amount of solar electric power by home owners through the use of large (above market) feed-in tariffs that results in a substantial increase in consumer utility bills was:

○ Germany

○ France

○ Latvia

○ United Kingdom

• Germany — Germany's Energiewende feed-in tariff program drove massive solar adoption but significantly raised consumer electricity bills.

Temperatures were originally predicted to rise in the 1970s by many climate forecasters. This turned out not to have happened because:

○ global warming is not real

○ of a large shift from coal to natural gas to produce electricity

○ of heavier cloud cover worldwide

○ the warming effect of CO2 was masked by cooling from SOx

• The warming effect of CO2 was masked by cooling from SOx — Industrial sulfate aerosols offset greenhouse warming until clean air regulations reduced them.

The first economist to study economic issues related to climate change was:

○ Max Auffhammer

○ Jim Hamilton

○ Allen Kneese

○ Peter Navarro

• Allen Kneese — Kneese was an early pioneer of environmental economics; note that Nordhaus is credited with the first climate-specific economic work, but Kneese is the broader environmental economics pioneer referenced here.

On July 1, 2017, the United States announced it was withdrawing from the ________________ Climate Agreement fulfilling a campaign pledge of President Trump. One of President Biden’s first acts was to rejoin the agreement, also fulfilling a campaign promise.

○ Copenhagen

○ Kyoto

○ Paris

○ Rio de Janeiro

• Paris — Trump withdrew from the Paris Agreement in 2017; Biden rejoined on his first day in office in 2021.

The hedonic pricing approach to measuring economic value works by recognizing that most local environmental and transportation infrastructure amenities are capitalized into:

○ automobile prices

○ gasoline tax rates

○ housing prices

○ Uber fares

• Housing prices — Hedonic pricing uses property values (and wages) to reveal people's implicit willingness to pay for environmental amenities.

Which of these is a demand side management program:

○ EPA’s light bulb information program

○ improving efficiency of solar panels

○ reducing methane leaks from fracking

○ none of these

• EPA's light bulb information program — DSM programs influence consumer demand for electricity; information/labeling programs are a demand-side tool. The others are supply-side.

Rooftop solar panels are more likely to be installed where consumers have:

○ cool summer temperatures

○ low feed in tariffs

○ strong environmental preferences

○ stiff competition from wind turbines

• Strong environmental preferences — Beyond just sunlight, environmental values are a strong predictor of rooftop solar adoption.

Carbon tax are:

○ easier to evade than most other types of taxes

○ will shift fuel use from natural gas to coal

○ likely to induce cost reducing technological change

○ likely to harm the nuclear power sector

1. Likely to induce cost-reducing technological change — A carbon tax creates a continuous incentive to innovate and find cheaper ways to reduce emissions.

In the short run, the “pollution tax” and “cap and trade” (marketable pollution permit) approaches to pollution control will have the same effect on the quantity of an air pollutant emitted if the pollution tax results in the same emission level as the “cap” on the quantity of permits.

○ TRUE ○ FALSE

TRUE — In the short run, a tax that produces the same emission level as a cap has identical quantity outcomes; the difference emerges under uncertainty.

The standard time series of daily carbon dioxide readings, known as the Keeling Curve, after Charles Keeling at UCSD’s Scripps Institution of Oceanography who start measuring it at Mauna Loa in Hawaii, was started in 1996.

○ TRUE ○ FALSE

• FALSE — Keeling started measuring CO2 at Mauna Loa in 1958, not 1996.

For the Coase theorem, which says that a polluter and those being harmed by the pollution will voluntarily negotiate an economically efficient levels of pollution, to hold two auxiliary conditions must also be met: property rights with respect to pollution must be well defined so they can be bought and sold and the transactions costs agents face in reaching an agreement needs to be quite small.

○ TRUE ○ FALSE

• TRUE — The Coase Theorem requires both well-defined property rights and low transaction costs to hold.

The pollution haven hypothesis suggests that the likelihood that a factory producing large amounts of steel by burning coal moves from China to India increases as the effective size of China’s carbon tax increases.

○ TRUE ○ FALSE

• TRUE — The pollution haven hypothesis predicts factories move to less regulated countries; a higher Chinese carbon tax makes relocation to India more attractive.

The U.S. Environmental Protection Agency was unable to quickly move from the BPT standards originally put into effect by the U.S. Clean Air Act of 1970 to stricter BAT standards originally planned because the BAT standards were time consuming to develop and the companies being regulated were successful in slowing down their implementation by using lawsuits against the regulations in court.

○ TRUE ○ FALSE

• TRUE — BAT standards were delayed by lengthy rulemaking and industry litigation, leaving the weaker BPT standards in place far longer than intended.

In the early 1960’s, the scientific debate over climate change shifted from WHETHER it would occur to WHEN it would start occurring?

○ TRUE ○ FALSE

• FALSE — The shift from WHETHER to WHEN occurred more in the 1980s, not the early 1960s.

The cost of generating electricity is cheaper using large solar thermal plants located in the desert than using roof top solar panels on houses.

○ TRUE ○ FALSE

• TRUE — Utility-scale desert solar thermal benefits from economies of scale and is cheaper per kWh than rooftop solar.

The benefit-cost ratio for taking actions to protect the stratospheric ozone layer is much larger than the benefit-cost ratio for taking actions to reduce climate change because in the ozone case the cost of the solution was relatively small and the benefits occurred in the near future, while the converse holds in the case of climate, the cost of mitigation is very large and incurred now with the benefits occurring mostly in the more distant future.

○ TRUE ○ TRUE

• TRUE — The ozone case had low costs and near-term benefits; climate change has huge upfront costs and distant future benefits — making the B/C ratio far more favorable for ozone

Carbon dioxide stays in the atmosphere for about 20 years after it is released.

○ TRUE ○ FALSE

• FALSE — CO2 persists in the atmosphere for hundreds of years (often cited as ~200 years or more), not 20 years.

Demand-side management programs provide economic incentives to consumers to alter their

behavior with respect to electricity usage that help the utility to shape its load profile to better match available generation capacity.

○ TRUE ○ FALSE

• TRUE — DSM programs shape the load profile by incentivizing consumers to shift or reduce usage, helping utilities match generation capacity.

Most greenhouse gas emissions in the future will come from the rapidly developing countries. This is because they:

(a) have large populations,

(b) have middle-level per capita income levels that are rapidly rising and

(c) use relatively inefficient equipment to control air pollution from factories, power plants, and

vehicles.

○ TRUE ○ FALSE

• TRUE — Developing countries have large populations, rising incomes (driving energy demand), and less efficient equipment — making them the dominant future source of emissions.

12. Transboundary pollution problems can easily be solved if a control program is available that has a benefit/cost ratio greater than one and most of the benefits accrue to one country while the costs mainly accrue to another country.

○ TRUE ○ FALSE

1. FALSE — Transboundary problems are hard to solve precisely when costs fall on one country and benefits on another — there's no mechanism to force the cost-bearing country to act.